Sustaining "New Era" Economic Growth
November 15, 1999
On October 28, the U.S. Department of Commerce released revised data on growth in the U.S. economy that show significantly faster growth, more saving and investment, and higher productivity than previously reported. They provide strong support for the idea that the U.S. economy has entered a "new era" of faster growth without inflation.
Speaking the same day the new statistics were released, Federal Reserve Chairman Alan Greenspan said the Internet and computer technology are fundamentally changing the U.S. economy. Their main impact is on providing businesses with better and more accurate information. This has improved delivery times and reduced the number of work hours necessary to produce goods. The result is that the economy is able to produce more with less.
This creates a "virtuous circle," Mr. Greenspan says. "Such circumstances lead to a very favorable period of strong growth of real output and low inflation."
The question is, How long can this go on? Is this just a temporary trend or the beginning of a long wave of higher growth and productivity?
Economist Brian Wesbury argues strongly that the new era will be with us for some time, with enormous implications for the economy and individual well-being. In "The New Era of Wealth," just published by McGraw-Hill, Wesbury identifies the technology revolution of computers and the Internet, the end of big government, and globalization -- the evolving global single market -- as key factors creating and sustaining the new era.
Also, Wesbury thinks the Federal Reserve has finally gotten monetary policy right. The result is that inflation is dead, which will lead to low interest rates and an end to the boom-and-bust economic cycle.
If Wesbury is correct, those forecasting the Dow Jones Industrial Average at 36,000 may be way too conservative.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, November 15, 1999.
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